INVESTMENT IN HOTEL PROPERTIES, NET

12 Months Ended

Dec. 31, 2021

Investment in Hotel Properties, net

Investment in hotel properties, net at December 31, 2021 and 2020 include (in thousands):


	2021		2020
Land	$	323,276	$	319,603
Hotel buildings and improvements	2,127,782		2,066,986
Furniture, fixtures and equipment	167,245		173,351
Construction in progress	18,321		8,903
Intangible assets	10,834		11,231
Real estate development loan	27,595		16,508
	2,675,053		2,596,582
Less - accumulated depreciation	(583,080)		(490,636)
	$	2,091,973	$	2,105,946

During the year ended December 31, 2019, we provided a mezzanine loan to fund up to $28.9 million for a mixed-use development project that includes a hotel property, retail space, and parking. In December 2021, we modified the loan agreement to increase the Company's funding commitment by $1.0 million. We have classified the mezzanine loan as Investment in hotel properties, net in our Consolidated Balance Sheets at December 31, 2021 and 2020 (See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 4 – Investment in Real Estate Loans" for further information).

Depreciation expense was $105.5 million, $109.2 million, and $99.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Intangible assets included in Investment in hotel properties, net in our Consolidated Balance Sheets include the following (in thousands):


	Weighted Average Amortization Period (in Years)	2021		2020
Intangible assets:
Air rights (1)	n/a	$	10,754	$	10,754

In-place lease agreements		—		397
Other	n/a	80		80
		10,834		11,231
Less - accumulated amortization		—		(310)
Intangible assets, net		$	10,834	$	10,921

(1) In conjunction with the acquisition of the Courtyard by Marriott - Charlotte, NC, the Company acquired certain air rights related to the hotel property.

Hotel Property Acquisitions

Hotel property acquisitions in 2021 were as follows (in thousands):


Date Acquired	Franchise/Brand	Location	Guestrooms	Purchase Price
Year Ended December 31, 2021
July 9, 2021	Residence Inn by Marriott	Steamboat Springs, CO	110	$	33,000
December 21, 2021	Embassy Suites	Tucson, AZ	120	25,500
			230	$	58,500	(1)

(1) The net assets acquired in 2021 were purchased for $58.5 million plus the purchase of $0.2 million of net working capital assets, capitalized transaction costs of $0.4 million, and restricted cash reserves of $5.1 million. Additionally, the Company assumed debt of $13.3 million and paid deferred financing costs totaling $0.2 million. We own a 51% controlling interest in these hotel properties through a consolidated joint venture.

The allocation of the aggregate purchase prices to the fair value of assets and liabilities acquired for the above acquisitions is as follows (in thousands):


	2021
Land	$	3,673
Hotel buildings and improvements	52,226

Furniture, fixtures and equipment	2,946
Restricted cash reserves	5,118
Other assets	405
Total assets acquired	64,368
Debt assumed	(13,267)
Deferred financing costs	236

Other liabilities	(214)
Net assets acquired (1)	$	51,123

All hotel purchases completed in 2021 were deemed to be the acquisition of assets. Therefore, acquisition costs related to these transactions have been capitalized as part of the recorded amount of the acquired assets.

On May 1, 2021, the Company contributed a portfolio of six hotels containing 846 guestrooms to our consolidated joint venture with an affiliate of GIC, Singapore’s sovereign wealth fund. The estimated market value of the portfolio of hotel properties was $172.0 million and GIC contributed $84.3 million in cash for its 49% interest in the joint venture after the completion of the transfer of the six hotels. The transfer of the six hotel properties was recorded by the joint venture at the Company's net book values as of the transfer date since the transaction was a transfer of assets between entities under common control. The excess of the $84.3 million of cash contributed by GIC over 49% of the net carrying amount of the assets transferred totaling $16.4 million was recorded in Additional paid-in capital. Transfer taxes of $1.8 million and legal costs of $0.3 million related to this transaction were recorded as Transaction costs during 2021. GIC, our joint venture partner, paid 49%, or $0.9 million, of the $1.8 million transfer tax which is reflected in non-controlling interest on our Consolidated Statement of Operations.

On November 2, 2021, the Operating Partnership and Summit Hospitality JV, LP, the Company’s joint venture with GIC, Singapore’s sovereign wealth fund (the “Joint Venture”), entered into a Contribution and Purchase Agreement (the “Contribution and Purchase Agreement”) with NewcrestImage Holdings, LLC, a Delaware limited liability company, and NewcrestImage Holdings II, LLC, a Delaware limited liability company (together, “NewcrestImage”), to purchase from NewcrestImage a portfolio of 27 hotel properties, containing an aggregate of 3,709 guestrooms, and two parking structures, containing 1,002 spaces (such hotels and parking structures, the “Portfolio”), and various financial incentives for an aggregate purchase price of $822.0 million.

On January 13, 2022, the Operating Partnership and the Joint Venture completed the acquisition of the Portfolio except for one hotel property, the 176-guestroom Canopy New Orleans, which is still under construction, for an aggregate purchase price of $766.0 million, paid in the form of 15,314,494 Common Units (deemed value of $10.0853 per unit), 1,958,429 preferred units of limited partnership of the Operating Partnership newly designated as 5.25% Series Z Cumulative Perpetual Preferred Units (Liquidation Preference $25 Per Unit) (“Series Z Preferred Units”), $382.0 million cash draw from a term loan entered into by subsidiaries of the Joint Venture, the assumption by a subsidiary of the Joint Venture of approximately $6.5 million in PACE loan debt and approximately $174.1 million cash contributed by GIC, as a limited partner in the Joint Venture. In connection with the NCI Transaction, GIC will contribute to the Joint Venture an estimated additional $10.9 million in cash, a portion of which will be distributed to the Operating Partnership after transaction costs payable by the Operating Partnership are deducted. The purchase price paid to complete the NCI Transaction has not been allocated to the net assets acquired as we are in the process of determining the values of the assets and liabilities. The purchase price allocation for the NCI Transaction will be completed during the first quarter of 2022.

The Operating Partnership and the Joint Venture expect to acquire the Canopy New Orleans upon completion of its construction, which is expected to occur during the first quarter of 2022, for a purchase price of $56.0 million, to be paid in the form of 550,180 Common Units, 41,571 Series Z Preferred Units, $21.4 million cash and $28.0 million cash proceeds from a delayed draw on the term loan entered into by subsidiaries of the Joint Venture.

Loss on Impairment and Write-off of Assets

During the years ended December 31, 2021 and 2020, the Company recorded charges to Loss on impairment and write-off of assets of $4.4 million and $1.8 million, respectively, on its purchase options related to real estate development loans. See "Part II – Item 8. – Financial Statements and Supplementary Data – Note 10 – Fair Value Measurement" for further information.